Mergers, Acquisitions and Financial Results

Long delays in licensing black consortiums to offer telecommunications services in rural areas have damaged the viability of those businesses by giving cellular networks time to reach their customer base.

More than two years after the licences were first mooted, no consortiums are yet operating in the 27 areas designated as underserviced. But the cellular networks have made such strong inroads that those areas barely count as underserviced any more.

That will make it extremely difficult for the new operators to make any money from their voice and data services, cautions research house BMITechKnowledge.

In a report on underserviced area licences (USALs), BMI-T investigated the areas designated for special attention because less than 5% of their population had access to a fixed line telephone.The 27 areas together cover 21.4-million people, or 48% of the total population.

Analyst Tertia Smit says the rapid expansion of cellular operators has seen network coverage of those areas reach about 86% of the population, far above any penetration that prevailed when the new licences were first proposed.

"This demonstrates that affordability, rather than accessibility, remains the main issue. The majority of people are still dependent on pay phones and are unable to afford their own phones. For the USAL operators to increase teledensity, they will have to come up with innovative and affordable options," says Smit.

Subscriber growth in those areas will depend on the amount of business activity, average wage level, population density, degree of urbanisation and the current coverage by Telkom and the cell operators.

Other factors affecting potential revenue include how long the licences take to be issued, how much cash the operators can borrow to build their networks, and the interest rates those loans will carry.

Success will also be more difficult if they must buy the equipment outright, rather than strike deals to lease it or pay for it over time.

The interconnection fees that Telkom and the cellular operators charge to link a call from a rural area to customers in other parts of the country will also influence their success or failure, says Smit.

So far licences have been approved for four rural operators and another three will be approved once the groups abide by conditions concerning their shareholding structures. Even so, that will see only seven areas covered, as bidders for licences in three other areas in an initial batch of 10 were rejected as substandard.

Dominic Mokhethi of Bokamoso Communications said he would not comment on BMI-T's findings until he had read the report, because he was not sure how well it had been researched.

He agreed that profits were becoming harder to achieve as the cellular networks expanded, but still believed the new operators could make money.

"There is still room for success. It all depends on the marketing strategies of the groups and how they package their services," he says. "We can't deny that there is some shrinkage of the market, but when the new groups come in, that will generate an excitement and some people will switch to the new operators." Bokamoso will operate in the Lejweleputswa district in Free State.

Despite the approval of some licences, the delays continue as the winning groups are yet to meet the Independent Communications Authority of SA to draw up the operating rules and regulations.

Business Day